Time and Discipline - Friend? or Foe? Episode 85

Have you ever evaluated your financial habits? Have you ever had anyone try to change your mind about your financial habits? Have you ever wondered how those habits compound positively or negatively over time? Check out today's podcast for more! 

Music by bensound.com

Transcript

Speaker 1: 0:03

Hello and welcome in again to another episode of Wisdom and Wealth. This past weekend I came across two quotes that kind of stuck in my mind and were in tension a little bit, and so I want to share those with you. In regards to financial planning and what I do for a living, the first one that I saw or that came to mind was a gentleman that I've grown to respect shared that the advice his grandfather had given him was don't try to change someone's mind, simply let them be wrong. I think many of you know the context in which that, or can guess the context in which that, was written. All I could think of after that was amen. That was closely followed by man all those poor congressional staffers getting ready for 2024.

Speaker 1: 1:02

The next thought that came across my mind was in context of the second quote that I hold in tension, and it was being wrong forever compounds, and if any of you know me well, you know that I'm just totally fascinated by the miracle of compounding. But there's a reverse side of compounding and there can be negative compounding. Whether it be in the medical field, whether it be in our thought, life, our relationships, certain things can compound that aren't good for you. I think that we do ourselves a disservice when we relegate compounding to simply the financial world or the numerical world, and so today I want to unpack the statements and why I felt that they were in tension. So in the first statement you know, just don't try to change someone's mind. I was struck by the thought, because there are many moments in which that's exactly what I get paid to do is to change someone's mind. Very few people, however, you know I think you've found, if you're like me want to be convinced that their preferences can be improved or that their beliefs need to be changed in certain areas. If you doubt me, you can test this out at the Thanksgiving dinner table. I'll bet you my favorite cigar that it leads to a memorable experience. But all kidding aside, I think the reason this idea has held in tension for me personally is because I truly do believe that sometimes, the highest value that I can provide someone is to not necessarily change their mind, but expand their awareness through additional information.

Speaker 1: 2:59

Most, I think in the financial advice industry, that is our primary value is to go against the grain. If you know me well, you know that I am very suspicious of crowds, especially when it comes to thought leadership and things of that nature. Most financial television and cable news are simply designed to keep you fearful and to keep you dependent on the next IV drip of bad news so they can continue to run ads in front of you. It's an eyeball game. It's designed to draw your attention and that's it, so that they can have the right to sell you something.

Speaker 1: 3:43

I've lost track of the number of times I've talked with someone who has seen a bad news historian in the horizon and they want to know how it adversely affects them and their situation specifically. It's not necessarily an unnatural inclination, but I think it's not helpful in all areas. Sometimes it's a person that moves the slowest and the most methodical that is the most efficient and the most effective in what they do. They know what they want, they know why they want it and they move forward towards that goal. It's not often that there's a moment where our first inclination is the most effective, especially when we are stressed or fearful. I think sometimes that's where I provide some of my primary values say, hey, take a breath, let's think about this for a minute, and to raise someone's awareness.

Speaker 1: 4:41

The other thing that comes to mind when it comes to changing someone's mind is and this is probably a little bit more common is what I call, and what the industry calls, shiny object syndrome. I've lost track of how many great ideas that are out there that are the next get rich quick ski. It seems like every six months there's some type of revolutionary potion, patent, elixir, idea or service that's going to just change your world, and the fact of the matter is we remember a couple out of a thousand, if we're being honest with yourselves. So I'm cautious when someone comes to me, and especially because underlying that shiny object is the fear of missing out, and really underlying that is the belief that we can get something easier or quicker than the proven methods of getting there. Don't get me wrong, I look at trends too. I have my eye on different entrepreneurs that I think are sharp and that are trying to serve a need in our society.

Speaker 1: 5:55

But wanting an easier path towards independence and fearing that we're going to miss out and being envious that our neighbor will get there before us probably isn't the most helpful way of structuring our investment philosophy or portfolio, for that matter. So there are many times where I have to basically, you know, sound boring by bringing proverbs back to life. You know, whoever gathers a little by a little will increase it. It sounds very basic and very fundamental, but it rings true today. If you aren't careful, you spend more time envying the market returns of your neighbor rather than remembering that, hey, in order to be financially independent, I really just need average returns. I need five, six percent returns over a long period of time, long periods of time in order to and I don't mean that year over year, I mean that in the aggregate over a long period of time in order to achieve my goals and to be independent. This is why those who know me well know that I focus on cash flow planning and adamantly planning for dividends. They're a beautiful thing.

Speaker 1: 7:04

The second statement that I mentioned at the outset that I want to bring in here briefly is that being wrong compounds for forever. Now, when I heard this, it sounded I cringed and then I was like, okay, is that being just a little bit too dramatic? Right, but I have four kids and I am haunted by the fact that there may be habits, blind spots of myself personally, or insecurities personally, and I'm not even aware of that could hold them back and might even hold their kids back, and I don't want any part of that. So that's where my brain went first, because I truly believe that I want my kids to see things as they are. I want them to be whole. I don't want them to be limited by my short-sightedness or my lack of vision in certain areas of life. I want them to become who they're supposed to become.

Speaker 1: 7:58

I do believe that we can be held back by certain beliefs, principles and habits that we're unaware of that aren't helping us. Exhibit A is hitting this news button on the board. Because of this, I'm constantly asking myself the question, as much as I possibly can what am I missing and is there a way to get better in certain areas of life? It's those often unexamined areas of life that can bring me the most fruit if I just focus on them a little bit longer. So shifting gears back to the financial part of that question of mistakes compound for forever. The most common one that I come across when I think of this idea is the tendency and the temptation to try to time the market and to avoid paying the risk premium. That compounds on into the future. And if you don't realize it, typically no one that I'm aware of tracks that right, because it's just too painful. But if you don't believe me, don't take my word for it, right?

Speaker 1: 9:06

Bloomberg put out a study recently that tracked the movement of $10,000 in the market If it was invested in the S&P from 1980 to present. It said that that $10 million came into approximately turned into approximately $1.2 million if it was left in the entire time. No deviations, no changes. Now you're probably sharp shooting me saying that, hey, you know, there was no index back then, so on and so forth. But you get the point. If the index had been there and you had equally weighted it, blah, blah, blah, all the same things, right. But if you missed just the five best days in the market over that 43 year period, that $1.2 million reduced to approximately $750,000. Think about that for a minute just five days, and you lost that amount of money, you know, approximately $500,000,.

Speaker 1: 9:57

Right Now, going out to the worst case scenario, if you lost just the 50 best days over that 43 year period and you tried to time your market you're weighing it out right and you missed those 50 best days for that 43 period, that $10,000, it grew. But $86,000, that's it right. $1.2 million, I'm leaving it alone and $86,000. We'll let that sink in. Write that down, pull it out and remind yourself of it daily if you have to, but when you're tempted to do something rash or foolish, remember that study. Furthermore, remember the second piece of information that Bloomberg also did, a study that took, you know, from 1936 to present day.

Speaker 1: 10:46

Your odds of achieving positive returns are over 97% when you stay invested for 10 years or longer. Now, if you stay invested for a day or a month, it's basically a flip of a coin. I don't like those odds. I don't think that that's anything that you should base a financial future on or anything that you care about. But if you know that the longer your time horizon, the better your outcomes, what better way to plan for your future?

Speaker 1: 11:19

So I hope that as you think about these two ideas, mainly don't try to change someone's mind, but I think you wanna change it just a little bit of hey, I want to pay a few people and keep a few people close to me that I trust to try to change my mind right, especially when I need it. Secondly, remember that it is a mathematical fact that being wrong can compound indefinitely, as evidenced by those Bloomberg studies that I cited. This should serve as your reminder again to make a financial plan, make a life plan that is meaningful to you. Construct the cash flows around that life plan that are going to make it feasible. Next, find someone who can hold you accountable and remind you of what's important to you, why it's important to you and how you're going to get there. You need to provide yourself, I think, the space, the time and the relationships necessary to stay focused on what's important to you and how you're gonna get there, so that you don't become you, don't let your own choices become your own worst enemy, because, at the end of the day, time and discipline are your friend.

Speaker 1: 12:35

I think I'll leave it here for now. Thank you so much for your time. Thank you for sticking with me. I hope you found this insightful and helpful, as always. I humbly ask please like and rate the podcast, as this helps us reach additional listeners and serve additional listeners. And, as always, remember. I wish you, your family, nothing but truth, beauty, goodness and the road ahead. Have a great week.